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Daniel Hibbert -Mercer Presentation
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Segmenting talent and reward
PPMA Conference - 2013
Daniel Hibbert
MERCER
Agenda
Page
Why are new reward models needed? 2
Segmentation of talent and reward 7
Getting value from reward 10
Four practical ideas for changes 15
Questions and discussion 21
MERCER
Why are new reward models needed?
3
MERCER
Characteristics of local government reward
Strengths
• Equal pay compliance
• A high degree of transparency
• Strong governance and processes
Weaknesses
• Too many job titles and grades
• Negotiated, not designed
• No link between pay and performance
• Little connection between pay and talent management
• Poor and inconsistent communication
• These findings are based on PPMA Sponsored research at Hertfordshire County Council and the Wigan Metropolitan Borough Council
4
MERCER
The role of equal pay in reward management
• Gender pay gaps in local government relate to:
– Large numbers of women in lower paid jobs
– In places limited numbers of women in senior roles
• Equal pay compliance is a baseline: it should not be the sole objective of any reward system
• Varying reward solely by job evaluation and tenure is:
– Incompatible with developing a flexible, responsive and high-performing organisation, and
– May be just as risky as alternative approaches to managing pay
“It is a truism, better repeated than left unsaid, that not every difference in pay between men and women is proof of unlawful sex discrimination.”
Lord Justice Mummery – Haq v the Audit Commission - December 2012
5
MERCER 6
Pay is negotiated, not designed
This is typical local authority pay and grading structure:
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
Green Book Grades
% P
ay
Ra
ng
e
0
50
100
150
200
250
300
Nu
mb
er o
f NJC
/Ha
y Po
ints
% Pay Range
NJC/Hay points
MERCER
Why “one size fits all” cannot work
7
• Local authorities increasingly have to deal with different:
– Service delivery models
– Types of jobs
– Employee aspirations (including generational differences)
– Employment markets and talent flows
• New models are needed to ensure that local authorities get value for money for their expenditure on reward
• These models will be different for different local authorities and for different segments of the workforce within the same authority
MERCER
Segmentation of talent and reward
8
MERCER
Alternative talent and reward models
Loyalty model
Market model
Career model
Dynamic
model
Specialist skills need to be developed internally and long-term loyalty is required by the employer
Skills are readily available in the external market and long-term career opportunities with the employer are limited
Long-term career opportunities are available for those who develop within the career path
The job is flexible/ broadly defined and the capabilities of the individual job holder are critical to the value created in the role
Talent characteristics
9
Incremental pay spine, with pay back-loaded so higher levels of pay become available with service
A single rate of pay aligned with the external market
A pay system that fits with the career path to support the development of individual through the career path
Pay reflects both the external market and is varied by reference to the capabilities of the individual
Reward approach
MERCER
The Market Model
Contrasting the market model with a career model
The Dynamic Model
Minimum salary
Developing Range
High Performing - Consolidated
High Performing -
Non-Consolidated
50
55
60
65
70
Ba
se
sa
lary
£'0
00
10
Additional salary paid to consistently strong performers
Individuals who are still developing into their role may
be paid in this range
Paid to exceptional performers, and not
consolidated into Base Salary
Minimum salary
Developing Range
21
22
23
24
25
Ba
se
sa
lary
£'0
00
The Rate for the Job paid
for the expected
standard of performance
Individuals who are developing
may be paid in this lower range
The Rate for the Job paid for the
expected standard of
performance
MERCER
Getting value from reward
11
MERCER
Element of Employment Value Proposition
Overall market positioning
Lag Compete Differentiate
Pay and benefits
Base pay
Profit sharing and incentives
Pension
Other benefits
Wellbeing policies and practices
Development opportunities
The nature of work (working environment, job satisfaction, etc.)
Private Sector
Local Government Private
Sector
Private Sector
Local Government
Private Sector
Private Sector
Private Sector
Private Sector
12
Local Government
Local Government
Local Government
Local Government
Local Government
A Total Reward approach
MERCER
Why communication matters
% of employees satisfied with their rewards
Source: Mercer’s ‘What’s Working’ study
National Norm
Communication rated good
How satisfaction changes if:
Communication rated poor
61%
71%
33% 27%
61%
52%
% of employees committed to their
organisation
• Mercer research shows a clear correlation between
– Communication and employees’ satisfaction with reward, and
– Communication and commitment
13
MERCER
Performance must be part of that communication
Business performance expectations
Poor individual performanceP
erfo
rman
ce
Time
• A candid performance discussion must take place prior to the cross-over point where individual performance moving from “Strong” to “Poor”
• Individual performance must keep pace with increasing and changing business performance expectations
Strong individual performance
14
MERCER
What is good practice in communication?
1. Total Reward statements
3. A “talent conversation”:
– In which the line manager provides feedback on both in-year performance and long-term development, and
– Can relate this to the reward system
2. A reward system that is clearly linked to talent development and performance
• This conversation cannot take place if the pay system has no connection with talent management and performance
• Without this reward systems cannot provide value for money
• Communication is not just about Total Reward statements and policies. There are three critical components:
15
MERCER
Four practical ideas for changes
16
MERCER 17
Four practical ideas for changes that can be made
• We have identified four practical and easily implementable actions that can be taken
• These are:
1. Rationalising grading structures to enable efficiencies and de-layering;
2. Making performance a part of reward communications
3. Useing the Career Model for jobs in clear career paths
4. Adopting the Dynamic Model of reward for Senior Manager pay
• These changes are a first step towards moving to modern and more flexible reward structures
MERCER 18
1. Rationalising grading structures
• Existing grades combined into broader Levels
• Current grades become Pay Zones within these Levels to retain control of costs
• A standardised Job Catalogue used to limited the number of different jobs
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
£' B
ase S
ala
ry
Zone 5
Zone 4
Zone 3
Zone 2
Zone 1
Min
MERCER 19
2. Making performance a part of reward communications
• Ensure that performance has potential pay consequences for all employees
• Reward employees at the top of pay ranges with non-consolidated pay
Progressing through pay
ranges
At the top of the pay ranges
4 Outstanding1% Non-
consolidated
3Above required standard
2 Required standard
1 Needs improvement
Unsatisfactory
Performance Outcome
No additional payments
No increment
Increment
MERCER 20
3. Aligning pay with career development
Newly defined Capability Levels
SCP Point
£
35 29,236
36 30,011
37 30,851
38 31,754
39 32,800
40 33,661
41 34,549
42 35,430
43 36,313
44 37,206
Sen
ior
So
cial
Wo
rker
(G
rad
e 10
)
Current approach
Advanced 2
1% Non-consolidated
1% Non-consolidated
So
cial
Wo
rker
(G
rad
e 9)
Advanced 1
Established
Developing
• Create linked grades to enable employees to progress based on their personal development
• Movement between levels within linked grades should be based on individual competence, assessed against role-specific criteria
• At higher levels progression should also be based on business need
Ca
ree
r de
velo
pm
en
t
MERCER
4. Adopting the Dynamic Model of reward for senior managers
21
Senior Manager
roles circa 2005
High job complexity/
flexibility
Low job complexity/
flexibility
Pay determined by job size
Pay determined by individual
capability
Senior Manager
roles circa 2015
Senior Manager
roles 2013
• Individual capability needs to become part of pay determination for more flexible and complex roles
• This requires a Dynamic Model of talent management and reward which varies pay for different levels of individual capability
MERCER
Questions and discussion
22
MERCER
Daniel Hibbert PrincipalMercer Tower PlaceLondon, EC3R 5BU
+44 (0) 20 7178 5520 +44 (0) 7557 [email protected]
Contact details
© 2013 Mercer LLC. All rights reserved. The information and data obtained through the report are for information purposes only and are not intended nor implied to be a substitute for professional advice. In no event will Mercer be liable to you or to any third party for any decision made or action taken in reliance of the results obtained through the use of the information and/or data contained or provided herein.